Don’t Fear Fixed Income in 2025

Jeffrey Buchbinder:

Hello everyone, and welcome to another edition of LPL Market Signals. Jeff Buchbinder here, your host for this week, with my friend and colleague, Lawrence Gillum, to talk a little fixed income. Lawrence, fixed income markets have been a little more interesting than normal. How about that?

Lawrence Gillum:

Yeah. We were hoping that would settle down into the year, but it looks like the excitement has picked up just in time for the last Fed meeting of the year.

Jeffrey Buchbinder:

Yes, it is a big week. Fed week, so we'll certainly talk about that. And you know, the selloff in the bond market last week. The equity market gave us some excitement as well. So it is Monday, December 16, 2024, as we're recording this in the afternoon. And you know, markets aren't really moving that much. They're up. Stock market anyway is up but not a lot. And so there is a chance that we will have the eleventh straight day of negative breadth for the S&P 500. I think that was probably the most popular source of chatter among traders last week. I mean, we got some meaningful economic data, certainly as well that we'll talk about, but this is really almost unprecedented to have, not just to have you know, 10 straight days of negative breadth, meaning more stocks falling than rising, but to have that happen when the stock market is up so much, and even holding recent gains is also unusual.

Jeffrey Buchbinder:

So we'll talk a little bit about that. But really the star of the show this week is Lawrence to talk about the bond market, and boy, it's a good time to have you on Lawrence after the big sell-off in bonds last week. And then of course the Fed preview. So starting with the you know, the market recap here, you see, you know, if you look at the S&P 500 down 0.6% last week, that isn't particularly noteworthy. But you know, when you look at the big losses in the Russell 2000, that's certainly noteworthy. The Nasdaq was actually higher on the week, up 0.4%, and then you had a lot of divergence at the sector level. So communication services, largely due to Google or Alphabet, up 2.5% last week. Consumer discretionary also strong.

Jeffrey Buchbinder:

There's big tech in there, up 1.4% last week. And then you had the tech sector outperform. Still, you know, down a little bit, but outperformed despite losses in Nvidia. Nvidia was down on Chinese regulatory concerns. So I think this is where you see what weak breadth means, right? It's really been a theme throughout 2024. It's that the big techs are leading the market and the rest of the market is really struggling. And this is where Lawrence comes in. The other reason why we you know, we're down on the S&P 500, other than just the fact that, you know, big tech was really the only thing that worked is because when the bond market sells off, you tend to get weakness in interest rate sensitives. So we saw losses in utilities, outsize losses, in utilities, in real estate.

Jeffrey Buchbinder:

You know, certainly a lot of people you know, get yield out of the healthcare sector. That was another big laggard last week. So you know, it was tough for value, whether it's cyclical value or defensive value. None of that worked. And the growth index you see here was up 0.7%. Mega cap growth index, large cap growth index up 0.7%, while the value counterpart down 2.1. Turning to international really quickly. I mean, you're getting a lot of headlines about political upheaval internationally. So you know, the EEFA had a tough week, even worse than the S&P 500. That measure of developed international was down 1.5%. EM actually did fine. I mean, we had the week started off last week with China stimulus announcements that I think you know, helped the EM complex. There's expectations for more stimulus, certainly from China. So that was maybe you know, a modest positive and a pretty much a sea of red outside the U.S. So how about the bond market, Lawrence? I mean, you see here how big the losses were in the Bloomberg Aggregate Index. What drove that sharp move?

Lawrence Gillum:

Yeah, so last week we got some inflation data. The CPI came in on, I believe that was Wednesday. And then PPI came in on Thursday. So two measures of inflationary pressures. One consumer, one producer. The consumer inflation data came in within expectations. But I think the that the PPI data that came in slightly hotter-than-expected, maybe got the bond market a little bit more concerned about these inflationary pressures that perhaps are not back to a solid disinflationary trend. The 10-year Treasury yield was up about 25 basis points last week. About half of that was because of increased inflation expectations. So while there's been a lot of progress on the inflationary front, I know Jeff Roach has talked about that a lot on this podcast as well as these Morning Calls that we have.

Lawrence Gillum:

But I think that there's a concern from the bond market that the inflation genie is not back in the bottle just yet. So it's one of those things where given the curve dynamics, which we'll talk about in just a second, markets have priced in a lot of rate cuts over the next couple years. And we continue to get those rate cuts priced out. And that's put upward pressure on yields, downward pressure on prices, and that's what we had again last week. The AG down about 1.4%, really led by mortgage-backed securities. One that they were down 1.6%, only up about 1.8% on the year. So then the fixed income markets, you're not even getting your coupon this year because of the the upward pressure on prices. Still positive but not as positive as you would expect, just if you owned individual bonds and collected coupons.

Lawrence Gillum:

If there was a glimmer of hope, it was in the some of the plus sectors not as bad as what we saw in the core sectors, which again suggests that the economy credit markets are all still doing pretty well. And there isn't really a big cause of concern, at least out of the fixed income markets that the credit markets are signaling any sort of slowdown on the horizon. High-yield bonds only down about 20 basis points last week, still up 8.9% on the year. So that's been a good place. Spreads within the high-yield bond market are still near secular tights, meaning there's just not a lot of compensation for owning high-yield bonds right now. So it's not an area that we're overly enthusiastic about, but it has been a good place to hide out this year, given the still resilient economy that we've seen.

Jeffrey Buchbinder:

Yeah, I think it's fair to say that we're not particularly excited about, you know, putting new money to work in stocks or bonds right now, because, as we wrote in our 2025 Outlook, which you can find on lpl.com, and we talked about last week we think, you know, sentiment is stretched enough and valuations are high enough that that probably limits the near term upside in equities. You can probably say the same thing about fixed income, right, Lawrence?

Lawrence Gillum:

Yeah, that's right. We talk about total returns and there's generally two ways to generate total returns. There's your income component and then your price appreciation. Price appreciation tends to come from tightening spreads or declining spreads. Where spreads are now they're pretty tight. I mean, so there's very little additional price appreciation in the near term for a lot of these fixed income sectors. We like preferreds. Preferreds, there's still some additional spread there, but for the most part and mortgage-backed securities valuations within that sector are still pretty attractive. But other than that, it's really an income, you know, coupon-clipping type environment, which we'll talk more about and it's kind of what we wrote about in our 2025 Outlook piece. But valuations in a lot of these plus sectors are pretty stretched.

Jeffrey Buchbinder:

It's almost like a competition. What's going to happen first? Are yields going to get even more attractive, or is the stock market going to pull back and provide a more attractive entry point? So certainly those are some things we'll be watching as we move into 2025. Those relatively more attractive yields today, at least versus last week, did attract some folks to the U.S. dollar, which, you know, over 107 on the DXY index, which continues to be a hindrance to international returns for U.S. investors. And that is certainly a popular Trump trade in terms of tariff policy and you know, that piece of it. But then on top of that, again, the political uncertainty in places like Germany, France, even South Korea, all really serving to generate demand for the dollar as a safe haven. Here's a chart of the S&P 500, and we'll get into this breadth a little bit.

Jeffrey Buchbinder:

I think what you're seeing here is that the breadth weakness is not confirming the advance in the S&P 500. So we're, you know, 6050 when I price this chart on the S&P, we're up a little bit more from that at the top end of the rising channel, which suggests that maybe we need to roll over a little bit, not a correction necessarily, but a pause, a breather, whatever you want to call it. And then when you look at the weak breadth, I mean, it's hard to see on this chart, because this goes back a couple of years. But these little red you know, lower bars on the right-hand side of the chart, you see there's actually 10 in a row that are red. And that hasn't happened in, I believe, about 25 years.

Jeffrey Buchbinder:

So it's very rare. In fact, the sample size is so small, it's hard to really draw any conclusion from it based on history. But what we would say about this is that it increases the chances that we're going to have a pullback and, you know, kind of limits the near term upside. And what you have here is you have a narrow led market with tech doing well and not a whole lot else. Here's another way to look at breadth. This is the advanced decline line, which again, that's what's fallen 10 straight days. The light blue line, when more stocks fall versus rise. This light blue line drops. Again, we've had 10 straight down days, but yet the S&P 500 is actually pretty much unchanged, even up a little bit, I think, over the last 10 days. So it doesn't mean anything today, but it tells us that maybe this rally's going to tire out and maybe you know, this is a logical place for a pullback.

Jeffrey Buchbinder:

Now working against that is that we have the most positive seasonal period of the year starting pretty much right now. The next few weeks historically are very positive, you know, Santa Clause rally and all of that. So you know, maybe we just sort of go sideways for a bit, chop around and wait for a pullback in January. We'll have to see. So big story, weak breadth. We think it means pullback is coming. You know, the market's weight is on the Mag Seven shoulders and that, you know, maybe it can continue for another month, who knows? Maybe even a little bit longer, but at some point that you know, the market's going to need more help from the rest of the S&P 500. So let's turn to the bond market, Lawrence, which of course is why you're here. We just put out our 2025 Outlook. And not only that, but the Weekly Market Commentary this week on lpl.com is your 2025 Outlook on the bond market. We're calling it the golden age for income investors, which I mean, after we just talked about how tough it's been in bonds lately, why would you call it the golden age?

Lawrence Gillum:

Yes. So there's a couple, as I mentioned, there's a couple ways to think about fixed income markets. You got your income-oriented investments, and then you have your potential for price appreciation. Our view is that we're in this kind of trading range for rates for the foreseeable future. So meaning you can buy bonds, collect coupon income, and take advantage of these high rates that are higher than we've seen in over a decade. So it's more about clipping coupons in the near term anyway because the economy has continued to outperform expectations. So we don't see a large fall in rates, but large fall in rates would help generate total return, help generate price appreciation. But absent that, it's all about clipping coupons. And right now, coupon income is still the most attractive again, it's been in over a decade.

Lawrence Gillum:

So you know, we've talked over the last couple years. You know, 2023 was supposed to be the year for fixed income. It wasn't. 2024 has not been the year for fixed income either. But I would argue, and this is maybe my unpopular take here, but I would argue that we don't necessarily want fixed income to be you know, the best performing instrument in a portfolio because that generally means that the Fed is cutting rates more than what's priced in, the economy is slowing more than what was expected. So as long as investors can reasonably expect to get their coupon payments every year, I think it's going to be the predominant driver of total returns, which again, I mean, coupon income is still at pretty attractive levels.

Lawrence Gillum:

So our key themes for fixed income markets in 2025, as I mentioned, expect a range bound yield environment. We're carrying forward our 2024 10-year forecast into 2025, 3.75 to 4.25 seems like it's a reasonable range for the 10-year Treasury yield to end this year. Given our expectations of a still strong economy I think we do have expectations of a slowdown, not a recession, not falling off a cliff or anything like that, but we do expect the economy to slow down a little bit. So, you know, a central point of 4% on the 10-year Treasury yield makes sense to us. We're advising clients to stay focused on income, as we just talked about, the coupon income component within the fixed income markets are still very attractive, particularly as cash rates come down.

Lawrence Gillum:

So as the Fed continues to cut, cash rates are going to come down. Money market funds, I think are yielding around 4.3%. And that's expected to come down further as the Fed cuts rates by extending some duration outside of cash into the one, two, you know, out to five years where you can take advantage of still elevated income levels, still elevated interest rate levels before those fall down as well, before those yields come down as well. So focus on income, balance, yield and risk. We don't like a lot of the plus sectors, as we've talked about because of spreads that are just very tight. Valuations are very full at this point for a lot of fixed income markets. So our view is stay up in quality, take advantage of the income component, but also within the high-quality fixed income space,

Lawrence Gillum:

there is that optionality to generate price appreciation if something bad in the economy happens and the Fed is going to cut more than what we expect. Or if that does happen, then that'll help generate price appreciation. So we're not abandoning fixed income altogether, despite the fact that we don't expect yields to fall because there is that potential to offset equity weakness if something bad in the economy happens. And then I threw this in here as well. This is not part of our Outlook but I think the set-up for munis is still pretty attractive as well. I'm in the process of writing my 2025 review, or, I'm sorry, outlook for munis. And there's a lot of good things for munis in the New Year as well. So I think we're just back to a normal fixed income environment where fixed income markets are going to provide income and provide that diversification to equity weakness in times of trouble. So I would argue that the fixed income markets should go back to its boring ways in 2025 and not experience a lot of this rate volatility that's been pretty uncomfortable for a lot of fixed income investors over the last couple years.

Jeffrey Buchbinder:

I think I've got the topic for your upcoming muni piece. How about, "Boring is Beautiful."

Lawrence Gillum:

Boring is beautiful in the bond market. I like it.

Jeffrey Buchbinder:

Very good. So thanks for that, Lawrence. So, you know, of course well first I want to kind of challenge you a little bit on your rate outlook because I'm sure a lot of people are worried about the Treasury supply. I know you're going to get into that and the deficit, right? And the potential impact that all of that might have on rates. So I want you to, you know, make the case or at least go into it a little bit more for why rates won't rise, you know, potentially above, let's say 4.50.

Lawrence Gillum:

Yeah, well, I mean, I think 4.50 is a good line in the sand for fixed income investors. We've seen that number before on the 10-year Treasury yield. And that generated a lot of demand. You know, when we got back to call it 5% on the 10-year Treasury yield last year, there was a whole lot of demand that came into the markets because you're getting 5% risk free from a credit perspective anyway. Not from, you know, a true risk free perspective, but you're getting 5% on Treasury yields at that point. So there was a lot of investors, a lot of pension funds, a lot of you know, institutional accounts that have long dated liabilities that are really investing heavily in the fixed income markets, particularly when we get into that or get close to that 5% number.

Lawrence Gillum:

So I think there is a ceiling in terms of how high rates can go absent a resurgence in inflationary pressures, right? So if we get an environment that's similar to the seventies and eighties where we see this resurgence in inflation then we can throw all this out the door because the Fed will likely keep rates elevated and that would likely mean 10-year Treasury yields are headed higher. But our view is that there's been enough progress on the inflation front. There's been enough signs of general weakness within the labor market to suggest the Fed can cut rates. I think the Fed will go this week. They'll cut rates 25 basis points this week. Maybe they cut a couple more times next year. And because of that rate-cutting campaign you know, what we're showing here is there is a relationship between the 10-year Treasury yield and the fed funds rate.

Lawrence Gillum:

So as that fed funds rate comes down, we're likely going to see the spread between the Fed funds rate and the 10-year Treasury yield expand a little bit, kind of get back into more normal levels, and that should keep, you know, the yield curve or it should put the yield curve back into its normal upward sloping shape and keep kind of a lid on longer-dated yields as well. But yeah, so these next couple slides are really just reasons why we think that the backend of the curve is not going to fall a lot. I don't necessarily think, again, because of what we just talked about, I don't think we're going to see significantly higher yields. I just don't know that we're going to see significantly lower yields, absence any sort of economic contraction. And that's what this first chart is showing, that as the Fed cuts rates that spread between fed funds rate and the 10-year Treasury yield, we'll kind of get back to that normal shape.

Jeffrey Buchbinder:

Yeah, a lot of people are talking about the Fed's destination being three and a half, maybe a little higher than that. So, you know, if you add a point to three and a half, you get four and a half, maybe that's a reasonable place to see a cap anyway.

Lawrence Gillum:

Yeah, and I would argue, I mean, it's really going to depend on what happens in 2026. 2025 markets have really priced in, you know, two more cuts for next year. So we'll have to see how 2026 pricing plays out because I think that's going to have a bigger impact on the 10-year Treasury yield. So if the final destination is the Fed and its neutral rate is back to 3, 3.25, 3.50, something like that. Then again, that just takes us kind of to where we are currently. So and I don't think we're going to see significantly higher rates, nor are we going to see significantly lower rates, which is the reason why we think income is the primary strategy here.

Jeffrey Buchbinder:

More boring, more beautiful.

Lawrence Gillum:

More boring, more beautiful. This is another chart that's just another way of looking at the fact that you're just not getting compensated to take on a lot of interest rate risk. This is where some of that wonky fixed income stuff comes into play. This is called a Treasury term premium. This is one of those theoretical constructs that looks at you know, the additional compensation that you're getting, or in this case not getting, for owning longer-maturity bonds. In a normal environment, whatever normal means these days, but in a normal environment, you should get additional yield for owning longer-maturity securities, given the fact that we have, you know, an uncertain inflationary environment. We have all the debt coming due and tremendous amount of supply expected over the next few years.

Lawrence Gillum:

So you should get compensated for taking on all that that interest rate risk, which I wrote in here from, you know, pre-2025, you got about a percent more for owning longer-maturity securities, and you're just not getting that right now. So given the shape of the curve, the flat shape of the curve, and just the fact that there's no additional compensation for owning longer-maturity securities, that's kind of put us into that kind of belly and type of recommendation and a neutral duration for those portfolios that are managed against a benchmark. I'm not a big fan of a lot of interest rate risk right here.

Jeffrey Buchbinder:

Yep. You're just not getting paid enough.

Lawrence Gillum:

That's what it comes down to. Yep.

Jeffrey Buchbinder:

Right. That makes sense. All right. So here's my, well, I like your first chart, but here's my second favorite of the three. This is going to be a real tough test for the market to digest all the Treasuries that the Treasury has to issue in 2025. So what gives you confidence that we can do it and the bond market can hang in there?

Lawrence Gillum:

Yeah, it's going to be, and this is where, again, another reason why we don't like a lot of interest rate risk in fixed income portfolios because there is a lot of debt coming to market over the next, call it 12 months or so, or even even longer than that, if budget deficits are as as sticky as expected. So 2025, there's about $6 trillion of debt that is needs to get rolled over. Remember, the government doesn't pay its bills. They just kind of roll over its debt and keeps accumulating debt over time. The 6 trillion is set to be refinanced next year. Now, to be fair, a lot of that is Treasury bills, T-bills. So the shorter-maturity securities, those tend to be easily digestible by the market because there's a lot of cash in money market funds still.

Lawrence Gillum:

And money market funds are the biggest buyers of Treasury bills. So as long as there's a lot of cash in money market funds still that you know, a lot of this refinancing will be easily digestible. But the new Treasury secretary has his job cut you know, cut out for him in the new administration. Janet Yellen, you know, she did what she thought was the right thing to do, and they issued a lot of Treasury bills to help fund some of these deficits. But the makeup of the Treasury maturity is it needs to be extended. And this next Treasury secretary is going to have a heck of a job and trying to extend the maturity of the Treasury issuance here.

Lawrence Gillum:

Because you can't rely on Treasury bills to fund deficits forever. You need to, it's just not a very good way to balance budgets. It really makes you susceptible to kind of the front end of curves and, you know, there's a lot more volatility there. And so there could be, you know, funding gaps at times. So essentially what Scott Bessent needs to do is extend the maturity of the Treasury debt and that means issuing coupons. And that could be where we start to see some volatility in the fixed income markets. Coupon securities tend to be the longer-maturity securities. And, you know, with the Fed not buying bonds as much and with, you know, the international community, particularly Japan and China, not as interested in our markets given the strong dollar you know, there's going to be a lot of need for these price sensitive buyers like households, hedge funds, institutional investors to get interested in the fixed income markets.

Lawrence Gillum:

So in order to kind of stimulate that kind of demand, you know, I think we still need to see elevated yields given the amount of Treasury debt coming into the market. Otherwise, you know, if yields fall too far too fast, really, there's no incentive for some of these price-sensitive buyers to get interested in our markets. So it's one of those things where, you know, I think there's going to be demand. We've seen demand, we've seen mixed demand in some of these auctions over the past you know, few quarters. And I think that's going to be consistent in 2025 as well. But this is a risk for the fixed income markets, particularly the long-end of curves, which again, is another reason why we we don't like a lot of interest rate risk here.

Jeffrey Buchbinder:

Yeah. This is a big challenge. I wonder if the government, you know, Yellen or Treasury, regrets not issuing longer-term debt several years ago when rates were so low. I mean, I know some countries did 50-year, I think somebody even did a one hundred-year. What do you think about that?

Lawrence Gillum:

Yeah, we stuck. So there was a new issuance, there was a new maturity under the first Trump administration. It was the 20-year security. It's really, so it's in between the 10-year and the 30-year. So there's not really a lot of organic demand for 20-year Treasury debt. So it hasn't been a very successful launch. I think the challenge for the Treasury department back then was there wasn't a lot of demand for a longer-maturity security that was still yielding close to zero at the time. So I think there was concerns from the Treasury department back then that they would, you know, issue this debt and no one would show up for it. So it wouldn't, you know, it would look like it wasn't a very successful auction.

Lawrence Gillum:

So but no, to your point, it's spot on. I mean, there were a lot of countries out there that did issue one hundred-year debt, and ideally you would want to term out your debt as far as you possibly can in a zero interest rate environment. But that hasn't been the case. And now in fact, we've been frankly, doing the opposite and with the expectation that rates are going to fall. So we'll see how 2025 and '26 play out as the Treasury Department attempts to extend the maturity profile here.

Jeffrey Buchbinder:

Well, keep us posted on how these Treasury auctions go.

Lawrence Gillum:

Oh, I will.

Jeffrey Buchbinder:

That is going to be well, again, we want boring and beautiful, but there's risk there. And that is going to be a huge story as we get into 2025. So let's get more into the Fed. I mean, obviously we've talked about the Fed a little bit here. This is the big event of the week. I think consensus is probably for a hawkish cut. So, you know, that's my question, Lawrence. How do you think the bond market reacts to hawkish commentary accompanying a cut?

Lawrence Gillum:

Yeah, I mean, that's the expectation right now. So the expectation is the Fed's going to cut rates, take the upper bound as you've marked on your screen here, the upper-bound fed funds rate down to 4.5%. So you'll have a full percent of rate cuts priced or taken place over the past few months. So the expectation is the Fed is going to say, we'll see how this is going to translate into the real economy, you know, a full percent of rate cuts. See if that kind of helps stimulate things where there's weakness in particular like the housing market, which, you know, we'll see if that actually flows through to the housing or not. But my concern is that every time J. Powell tries to be hawkish, he ends up being dovish.

Lawrence Gillum:

So we'll see at the press conference how the press conference goes, and if he sticks to some of the hawkish language or if he kind of goes back to, you know, they'll cut as expected or, I mean, we'll see how the press conference goes. I think that that'll be actually more important than a lot of the data. Although this Fed meeting, we do get additional data in the form of the summary of economic projections. Get a new dot plot, which is just one of those releases that shows where the individual committee members talk about where they think rates are going to go over the next couple years. So we'll see how the press conference goes though. My concern is that they get cut, they talk hawkish, and then he kind of backpedals a little bit. So we'll see how that goes though.

Jeffrey Buchbinder:

So the market might not buy the tough talk.

Lawrence Gillum:

Yeah, I'm afraid that's the issue.

Jeffrey Buchbinder:

Well, I mean, they're restrictive now. And, you know, you could argue, sure, the economy is doing doing really well, but inflation's not that high and it's making progress. Even if they cut, which they probably will, they'll still be a little bit restrictive. So I don't know why folks are pushing back. I mean, I've heard several folks say that they don't want to cut at all.

Lawrence Gillum:

Yeah.

Jeffrey Buchbinder:

And then I've heard some say that they don't want any cuts in 2025 either. Yeah.

Lawrence Gillum:

Yeah. I mean, well it's one of those things where, I mean, it depends on kind of where you're looking at. So 10-year Treasury yields are higher now, but when the Fed started cutting rates when they did that initial 50 basis point cut you know, Treasury yields have only moved higher since then. Because I think there were concerns about being too aggressive on the interest rate cut front and reigniting inflationary pressures. I think after this week, or I'm sorry, last week with the CPI data and the PPI data, you know, maybe there's a bit more concern. At least that's what the bond market is telling us. There are still concerns that you know, the inflationary pressures are not fully over. So I think that's where the hawkish needs to come from particularly in light of last week's PPI data.

Jeffrey Buchbinder:

Yeah, good point. I mean, in prior inflationary episodes, you tend to get a second wave, right? Much more often than not. That's looking at other countries as well over a pretty long and you know, rigorous sample. So yes, I'm sure that's in the back of the Fed's mind and hopefully they will convey that to markets because we don't want too much dovishness and you know, that'll just cause more folks to be talking about an asset bubble and maybe too much volatility and all of that. So it's probably good for markets if Powell does strike that sort of hawkish tone. That makes folks wonder whether we're going to get a couple cuts next year. And that's our base case. But certainly you know, that could go either way. So that of course is the big event of the week, the Fed which will of course be writing about after it's over. The retail sales matters because it's November and that's the start of the holiday shopping season.

Jeffrey Buchbinder:

I mean, expectations are for a half a percent increase month over month, pretty close to that, even if you take out gas and autos. So that's a pretty healthy number. Holiday shopping sales overall are expected to increase something like three and a half, maybe 4% year over year. That's pretty good. I mean, this economy is doing just fine. We know that consumers are benefiting from a wealth effect. And you know, we know unemployment is low, even though we got a little bit of an uptick in claims last week. Still most folks are employed and wages, or more broadly, the government's measure of income has risen faster than inflation has the last few years. So it's a good environment for consumers. I actually went to the mall last night and it was pretty active.

Jeffrey Buchbinder:

I mean, it's hard to gauge. I don't like count heads when I'm going to the mall to see if what it's doing up year over year or down year over year, nor do I count cars in the parking lot. But it felt like a pretty healthy environment. So yeah, look for a good holiday shopping season, and again, this is a good seasonal period for markets. It's hard to see something really derailing us. I mean, unless the Fed surprises this is really this and the core PCE, the Fed's preferred inflation measure, is out at the end of the week. And those are probably the last two things this year, at least economically, that can you know, potentially cause a sell-off. So we would just expect markets to hang in there. Any any comments on any of the data this week, Lawrence? Beyond the Fed?

Lawrence Gillum:

No. I mean, I think, yeah, the retail sales tomorrow is going to be interesting. But not a lot of Treasury auctions this week. So we don't have to to worry about debt markets pushing back on issuance this week anyway. But it's all about the Fed on Wednesday.

Jeffrey Buchbinder:

And then the BOJ on Thursday, right? I think Bank of England too. So, I mean, the Bank of Japan is widely expected to hike at some point soon, but I think most people expect that to be early 2025. I mean, they have to support the yen, right? They don't want to get too weak and you know, have another episode of the market disruption that we got in early August. So that's something else to watch this week. Oh, and by the way, we get a couple of interesting earnings reports this week as well. Companies that have November quarter ends start reporting. So Nike is one. FedEx is another. Those are certainly two big names. Micron from the semi space is another. So we're going to follow earnings, I think 17 S&P 500 companies report this week.

Jeffrey Buchbinder:

The expectations for Q4 earnings are pretty, pretty strong. Consensus is 12%. So once we get to New Year's and we start talking more about earning season, I think you're going to see the market like some of the numbers that we're seeing. I'll save a preview of earnings for maybe, we'll do that for next week. But we're getting close to the end of the quarter here. And you know, that means earnings. So busy week. It'll be the last busy week because Christmas week, you're not going to see too much of anything. So other than you're going to be spending time with your family and enjoying the holiday and maybe doing some last minute shopping. Lawrence, you got your shopping done? Still working?

Lawrence Gillum:

That's my wife's responsibility.

Jeffrey Buchbinder:

Okay, is she done?

Lawrence Gillum:

Not because I'm making her, I want to make that clear. No, she enjoys that.

Jeffrey Buchbinder:

Yeah. And my wife enjoys the shopping too. So we are mostly done, I would say, but a couple of more things to get.

Lawrence Gillum:

We have a room full of Amazon packages so I hope she's done soon.

Jeffrey Buchbinder:

Well, you know how that goes, no doubt. So hopefully for everybody out there, the holiday shopping season is off to a good start for you and you aren't going to be rushing and panicking over the next few days. So thank you for listening to another episode of LPL Market Signals. Lawrence, really great having you on and getting your insights on the bond market, which, you know, bond market's very, very interesting right now. Not so boring, very interesting. And I can't recall being as interested in what's going on in the bond market as I've been maybe over the last year or two. So with that, we'll sign off everybody. Have a wonderful week, happy holidays, and we'll see you next time.